Ford Motor and General Motors are looking beyond cars. If history rhymes, investors could come to regret their wandering eyes. Will this time be different?
In May, Ford's shares surged as much as 45%, adding nearly $23 billion of market value, in the weeks after it formally announced Ford Energy, a grid-scale battery-storage business that will serve the power needs of artificial-intelligence hyperscalers and utilities. Its shares have since moderated, but are still up more than 20% since the Ford Energy launch. The company is also re-entering the defense sector, having recently won a contract to build tactical trucks for the U.S. Army.
GM's shares have climbed 16% since last week's earnings call, when it raised its full-year guidance and provided some details around its own defense and grid-scale battery businesses. On the earnings call, GM Chief Executive Mary Barra said these are opportunities to improve margins and become less cyclical.
Investors might want to keep their expectations in check. These businesses are promising but not proven, and automakers have a checkered history with diversification.
Automakers have good reason to look beyond cars, even if their core business looks decent today. Ford and GM's high-margin sport-utility vehicles are selling well, and both raised their full-year guidance for the second time this year. But they know the good times can't last.
Chinese electric-vehicle makers are a looming threat, even though they are being kept at bay thanks to import restrictions. The long-term picture for traditional autos is bleak: Fewer young people are getting a driver's license, new-car prices are out of reach for many Americans, and cars are lasting a lot longer than they used to. "The industry is in decline," said Tom Narayan, equity analyst at RBC, who added that auto suppliers are also diversifying.
U.S. automakers are finding themselves in a similar situation as they did in the mid-1980s. Back then, the U.S. government temporarily fended off Japanese companies by restricting imports. That, and a booming economy, helped Detroit carmakers rake in profits, which were subsequently funneled into pursuing other businesses.
In the 1980s, Ford bought financial-services companies, including First Nationwide and Associates, believing that these businesses would be more steady sources of revenue. GM bought an information-technology company to help automate its factories and acquired defense manufacturer Hughes Electronics in an effort to make cutting-edge cars. Overall, GM plowed more than $40 billion into its automation push.
But these diversification attempts were unsuccessful. Ford fell behind Japan's engine technology in part because it spent too much money on diversifying instead of focusing on its core business, an industry analyst argued in a 1990 Los Angeles Times article. GM's plant productivity actually declined over its heavy investment period in the '80s, according to research from Marvin Lieberman and Rajeev Dhawan of UCLA. More recently, Ford and GM took massive write-downs after making big investments in electric vehicles.
The bullish argument this time is that Ford and GM aren't spending buckets of money or stepping far out of their comfort zone. But their new ventures will also do little to move the needle for the foreseeable future.
Ford's grid-scale energy-storage business, for example, involves repurposing its EV battery factory in Kentucky. Doing so will cost $2 billion between 2026 and 2027, about 10% of its total expected capital expenditures over that period. GM's infantry-squad vehicles for the military are based on an off-road truck and are primarily made of commercial off-the-shelf parts. Less is known about GM's separate push into weapons production with Lockheed Martin, but GM has stressed that it plans to invest in adjacent businesses in a capital-efficient way.
These new verticals have much more promising prospects than cars. Defense budgets are rising around the conflict-ridden world. U.S. energy-storage demand is expected to grow at a compound annual growth rate of 38% through 2030, according to Morgan Stanley. At the same time, generous federal subsidies are available for domestically manufactured energy storage. That gives the auto industry a unique advantage: They have excess battery manufacturing capacity, good supply chains and know how to manufacture at scale, according to Andrew Percoco, equity analyst at Morgan Stanley.
And these sectors come with the potential for much higher multiples. Defense stocks in the S&P 500 trade at 30 times forward earnings. Energy-storage-related stocks such as Fluence Energy and Tesla trade at even more eye-watering multiples. Ford and GM trade at a meager 7.8 times and 6.2 times forward earnings, respectively.
But such a rerating isn't in the cards anytime soon. GM Defense is expected to bring in $700 million of revenue this year, a drop in the bucket for a company whose total 2026 revenue is projected to reach $186 billion. The company thinks the segment can grow at a compound annual growth rate exceeding 30% over the next several years with double-digit margins. Even if GM Defense grows at an average rate of 35% and makes operating margins in line with defense contractors, its operating-profit contribution would be less than 1.5% by 2030.
Ford Energy has signed its first customer and is expected to start delivering its products by late 2027. Morgan Stanley's Percoco estimates that Ford Energy could generate $588 million of operating profit by 2029. That would represent about 5% of the total operating profit Wall Street expects for that year, a decent but not transformative amount. If Ford wants a higher profit contribution, it would have to invest in more manufacturing capacity.
The concern isn't Ford and GM's intent to diversify, which seems prudent enough. It is that they keep finding themselves on their back foot, chasing markets too late or looking for solutions outside of their core business.
Their push to EVs was driven by an impulse to pursue a hot trend favored by investors. And their forays into new businesses in the '80s was influenced at least in part by the corporate-diversification culture, which was in vogue at the time, noted Edgar Faler, an analyst at the Center for Automotive Research. The dangers once again are that U.S. automakers might be too late to catch current trends, or that these pursuits distract them from their core business.
Foresight has never been U.S. automakers' strength. That is one reason investors should view their shiny new pursuits with some caution.
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